Dealing with debt is difficult, but dealing with a tax debt with the IRS is even worse. Not only are many
tax debts not dischargeable in bankruptcy, but it’s easier for the IRS to get its money from you thanks to
things like tax liens and levies.

If you’re worried about one or more unpaid tax bills, you probably already know these things. But before
you hire a tax resolution firm that you heard about from television, radio, or an online ad, there are a
few things to keep in mind. Namely, that it’s not usually as easy to get the tax relief promised by some
tax relief companies. There are several reasons for this.

Reason #1: Tax Forgiveness isn’t a Real Program

There’s currently no official IRS program called “Tax Forgiveness” or “Fresh Start.” In the everyday
sense, tax forgiveness is real in that it’s sometimes possible to pay off an IRS tax balance for less than
the full amount. If you qualify to do this, however, you’ll be using one or more tax settlement options
offered by the IRS that go by other names or terms, such as:

• Penalty abatement
• Offer in compromise
• Innocent spouse relief
• Partial payment installment agreement

Reason #2: Any IRS Tax Balance Reduction is Often Less Than Advertised

If a tax relief company claims to be capable of settling your tax debt with the IRS for pennies on the
dollar, they technically aren’t lying. Paying off a tax debt for 10% or even 5% of the original amount is
possible, but it’s rare.

The exact amount an unpaid tax bill can be lowered depends on the type of relief sought, your financial
situation, your age, and the basis for requesting the relief. For example, if you can successfully prove to
the IRS that a tax debt isn’t yours or isn’t valid, then you can expect the entire debt to be wiped away.

In contrast, if your finances indicate you can afford to pay for basic living expenses and 90% of your tax
debt, it would be unreasonable to expect the IRS to settle your tax debt for 20% of the full amount.

Reason #3: There are Special Eligibility Requirements

The most popular way to resolve an IRS tax bill for less than the full amount is with an Offer in
Compromise, or OIC. This is what the IRS used to call the Fresh Start program. It allows taxpayers to
reduce their tax debts by providing an analysis of their current financial situation.

Convincing the IRS to accept your OIC is an arduous process. Offers often require extensive financial
disclosures and carefully presented factual and legal arguments. It can also take time to get a response
from the IRS after submitting the OIC.

Reason #4: It Takes Time to Obtain the Best Forms of Tax Relief

The process of submitting an OIC can take several months to complete. Then, once sent to the IRS, it
could take up to 12 months to get a decision (your OIC will be deemed automatically accepted if the IRS
doesn’t make a determination within two years of receiving your offer).

If you’re able to wipe away part of your tax debt with a Partial Payment Installment Agreement (PPIA), it
might take even more time. This is because the IRS agrees to forego any tax collection actions against
you, but only after the Collection Statute Expiration Date (CSED) has passed. The CSED is normally 10
years from the date of a tax assessment.

Get Help From a Tax Professional to Reduce Your IRS Tax Debt

As you can see, eliminating some, or most, of your tax debt is possible, but it takes time and effort. And
that assumes you’re even eligible for the type of tax relief you’re applying for. If you believe your tax
debt should be settled for less than the full amount, you need to be realistic about what to expect.
Therefore, it’s a good idea to first talk to a tax professional with experience handling unresolved tax
debts.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Do Not Ignore Your Tax Problems!

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Of the various types of financial debts, owing the IRS money for unpaid taxes is among the worst. Not only are most tax debts non-dischargeable in bankruptcy, but the IRS has powerful tax collection tools, such as tax liens and levies. 

Despite the upper hand the IRS often has when it comes to tax enforcement, there’s still room for negotiating with the IRS. These talks can arise when trying to settle a tax debt for less than the full amount, comply with an audit request, or appeal an IRS decision. No matter what you’re negotiating, keep the following tips in mind.

Tip #1: Follow IRS Instructions and Procedures

If there are special procedures or rules for something, such as filing an appeal or requesting tax relief, follow these explicitly outlined steps unless the IRS or a qualified tax professional says otherwise. The majority of people you might interact with at the IRS are overworked and probably under a lot of pressure to process cases and requests as quickly as possible. 

This is particularly true given the current political climate and how the IRS is an easy target for many politicians on both sides of the political aisle. So the last thing you want to do is ask the IRS for something without following instructions, as it gives the IRS an easy way to reject your request. 

If an IRS worker can undermine your negotiating position on a technicality in 30 seconds instead of taking five minutes to review the merits, you have to assume they’ll take the path of least resistance.

Tip #2: Have All Relevant Information Before Contacting the IRS

If you receive a tax notice or letter from the IRS informing you about an outstanding tax balance, there will probably be a phone number, fax number, and/or address for you to use to address the concern. Before reaching out, make sure you know the relevant facts to your case, as well as have any necessary documents.

For example, if you think you can lower your tax bill with First Time Abate penalty relief, it might be a good idea to confirm your history of good tax compliance by obtaining your tax transcripts and records from the IRS.

Tip #3: Be Polite and Considerate

Even if you believe the IRS is the most evil organization in the world, is an unconstitutional overreach of federal power, or all of the above, when you talk to an IRS employee, treat them with respect. Remember that they’re people too, so they have feelings and emotions, as well as families, personal struggles, and financial challenges.

Therefore, making them angry, mad, or offended is unlikely to help your case, and neither is deliberately trying to make their job more difficult. If the IRS employee sees you’re trying to be reasonable and accommodate their position, they’re far more likely to do so with you. 

This is especially true during audits, where you might need more time to respond to an IRS request for documents or information. If you’ve been prompt with prior responses or accommodating to the revenue agent’s busy schedule, they’ll be more willing to accommodate you if you need an extension or a meeting rescheduled.

Tip #4: “If Mom Says No, You Can Always Ask Dad”

IRS employees aren’t your parents (although it might feel that way sometimes, and not in a good way), but you can still follow the strategy of not giving up just because one parent says no to your request. Depending on your tax case, if you call the IRS to make a request, the first person you call might say no. Don’t accept this is the final decision from the IRS and instead try calling again to ask a different IRS employee.

IRS employees sometimes get things wrong and make incorrect decisions or make mistakes with the information they give taxpayers. Or, there’s a chance you reached out to someone when they were having a bad day. As a result, it’s a good idea to try speaking with someone else who might be more willing to hear your side and negotiate a resolution that’s more favorable to you.

Tip #5: “Trust, But Verify”

If the IRS makes a decision or gives a response you disagree with, ask for the legal basis for the decision. Whether it’s a court case, IRS regulation, federal statute, or internal policy that controls how the IRS is supposed to handle your situation, you want to know what it is so you can double-check what the IRS is telling you. This information will also come in handy if you decide to challenge the IRS’ decision, whether in court or through an informal appeals process.

Consider Talking to a Tax Resolution Professional

Negotiating with the IRS is a lot like any other negotiation. The problem is that not everyone likes to negotiate or feels confident doing so. Then there’s the time and effort required to negotiate with the IRS. Hiring a tax professional can help with these potential negotiating hurdles. To learn about what Kienitz Tax Law can do for you when negotiating with the IRS, contact us to schedule a free consultation. 

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal
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Paying taxes to the IRS is bad enough, but getting audited might be worse. It’s one thing to get an
unexpected tax bill, but spending so much time gathering documents and complying with revenue agent
requests makes it feel like the IRS is adding insult to injury. While there’s no comprehensive list of IRS
audit triggers, the following is a discussion of red flags that could lead to an audit.

Underreporting Income

One of the biggest reasons for a tax audit is that the income reported on a tax return doesn’t match
income information that the IRS receives from third parties. Your employer, bank and any other
institutions where you generate reportable income usually report that income directly (or indirectly) to
the IRS with W-2s and 1099s.

Using Round Numbers

Whether it’s income or an itemized deduction, very few independent contractor taxpayers rarely make
exactly $70,000 annually or have deductible business expenses for travel and client lunches that add up
to a perfect $4,000 for the year. Using round numbers probably doesn’t automatically result in an audit,
but likely serves as one of several factors when deciding who to audit.

Unusual Tax Deductions

If you claim a large number of deductions or deductions that seem out-of-place for your profession,
then those could potentially raise audit red flags. For example, if you work from home, then a home-
office deduction is to be expected. But if this deduction is also claimed along with an energy-efficient
commercial building deduction, then that could seem a bit odd to the IRS.

Another example is one or more large charitable deductions when you earned a comparably small
income. Think about it, it’s not unusual to earn $50,000 in a year and claim a $300 deduction to a local
charity organization. But if you earned $20,000 and made a $8,000 charitable donation, that’s a bit
unusual and could trigger the IRS asking that you produce documents to substantiate the deduction
and/or your income.

Consistent Business Losses

The IRS is wary of individuals who try to claim business-related deductions and losses for activities that
are hobbies. You might enjoy fishing and think you can write off the cost of your fishing boat as a
business expense because you also claim you’re a professional angler.

One way for the IRS to see if you really use your fishing skills to pay your bills and feed your family is to
see if your business turns a profit. It’s common for businesses to have down years, but the IRS often
views several consecutive years of business losses as a possible sign that someone’s engaged in a hobby
and not a career. If the IRS has this suspicion, they sometimes conduct an audit to see if they’re right.

Earned Income Tax Credit

The Earned Income Tax Credit (EITC) is often improperly claimed. This is usually the result of confusion
about credit eligibility. However, as a result of the high frequency of EITC errors, the IRS pays special
attention to tax returns that claim these credits.

Earning Too Much or Too Little

Generally speaking, taxpayers at the lower and higher-income scales are at higher risk of audit .
Specifically, the biggest risk of an audit came from those earning less than $50,000 or more than $1
million per year. This makes sense, as lower-income filers tend to be more likely to claim certain tax
credits, such as the EITC and higher-income filers have money to make an audit and other tax collection
activities worth the IRS’ time and effort. There’s also the fact that wealthier taxpayers often engage in
more aggressive tax avoidance strategies.

Inconsistent Income

Large swings in income can sometimes indicate that the income isn’t being properly reported to the IRS.
For instance, if you earned $145,000 per year for five years, then your income dropped to $65,000 for
the next few years, that probably won’t lead to an audit in and of itself. But change things around a bit
and you go from earning $145,000 for five years, then $65,000 for one year, then back up to $150,000 in
the next year. Now the IRS might suspect you underreported your income during the year you made
$65,000.

Worried About a Tax Audit?

The exact triggers for an IRS audit aren’t publicly known, but the above should give you a rough idea of
things you can try to reduce your chances of an audit. If you’re particularly worried about an audit, it
might be worth talking to a tax professional. They can help you identify potential risks and should you
get audited, assist you through the process.

Kienitz Tax Law is here to help you with your tax issues. Schedule your FREE consultation today!

Do Not Ignore Your Tax Problems!

Tax Law is Our Specialty. Contact us to Get Your Life Back to Normal
Get a FREE Case Evaluation